California Carbon Auction May Trigger Price Drop, BNEF Says

By Lynn Doan -
Sep 25, 2012

California’s first auction of
carbon-emissions permits may cause prices to fall by offering
too many allowances too quickly, according to Bloomberg New
Energy Finance.

Companies may be particularly reluctant to buy permits that
aren’t valid until 2015 if they can hold off and buy them later,
William Nelson, a Bloomberg New Energy Finance analyst in New
York, said in an e-mailed statement.

The state Air Resources Board on Nov. 14 will sell at least
21.8 million allowances to be used during the first compliance
phase of the cap-and-trade program, designed to help curb
California’s greenhouse-gas emissions by 2020 to 1990 levels.
The agency will also offer about 39.5 million permits for the
second compliance phase beginning in 2015.

“Most companies are willing to stockpile credits to cover
emissions one to two years into the future, whereas there is a
four-year span between the November 2012 auction and the date
that 2015 allowances are actually due,” Nelson said.

California carbon futures have dropped 22 percent from this
year’s peak of $20.25 a metric ton in July on speculation that
the program may be delayed and that demand for permits has
weakened. The state is set to create the world’s second-largest
carbon market, behind only the European Union’s emissions
trading system.

2015 Permits

Prices for 2015 permits will reach $10 a metric ton should
allowances go unsold in the November auction, according to
Bloomberg New Energy Finance. California lawmakers, who are
counting on at least $660 million in revenue from auctions held
in the 2012-2013 fiscal year, may “miss that mark,” BNEF’s
research showed.

Carbon permits for delivery in December 2013 dropped 40
cents to $15.35 a metric ton, the lowest since June 7, data
compiled by CME Group Inc. (CME)’s Green Exchange shows.